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Rising Interest & FHA Loans

by Peter G. Miller
June 13th, 2007

The news from Wall Street yesterday was fairly brutal:

*The Dow finished down 129.95 and finished at 13295.01
*The Nasdaq dropped 22.38 and closed at 2549.77
*The S&P 500 was off 16.13 and end at 1492.99

Why did this happen? While there’s no single reason why stocks move one way or another, it surely didn’t help that yield for the 10-year Treasury note went to 5.248 on Tuesday, up from 5.154 on Monday.

Ten-year Treasury notes are important to homeowners because a typical mortgage does not last 30 years. Instead — because people sell and refinance — loans have a far shorter term, say 10 years or so. Investors compare mortgage rates with 10-year Treasury notes and invest in whichever has the better yield. Unfortunately, when yields increase on 10-year Treasury notes, the same thing happens to mortgage rates.

You can see where this is going. Mortgage rates have been rising and now they are certain to rise further. This means ARM payments for many borrower will also rise and for many homeowners that’s a problem. It means they will need more money for their loans and also that they will have less money for other purchases.

For some homeowners the situation will be worse.

RealtyTrac, the leading online marketplace for foreclosure properties, said in its May 2007 U.S. Foreclosure Market Report that a total of 176,137 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported during the month, up nearly 90 percent from May 2006.

If you think foreclosure levels are steep today, wait until higher mortgage rates begin to kick in.

As to FHA borrowers, they didn’t use stated-income loan applications, they don’t face massive re-set payment increases and thus they have a better shot at financial sanity and security.

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This entry was posted on Wednesday, June 13th, 2007 at 6:52 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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